A serious legal offence that mainly affects investors is share fraud. It refers to a variety of scams in which perpetrators try to convince investors to invest in securities they do not need or that promise astronomical returns.
Issuing unauthorised securities, selling unregistered securities, market manipulation and insider trading are just some of the ways in which stock fraud can occur.
Table of contents
- Types of share fraud
- What is share fraud and how can you spot it?
- What are the examples of share fraud?
- How can you distinguish share fraud from other types of securities fraud?
- How can investors protect themselves from share fraud?
- What is the statute of limitations for stock fraud?
- What are the legal provisions for prosecuting share fraud?
- What are the consequences of stock fraud?
- How does a lawyer help victims of share fraud?
Types of share fraud
To protect investors from dishonest actors, it is important to understand how these different forms of fraud work. There are several ways to commit share fraud, but the best known are insider trading, pump and dump, market manipulation and dishonest sales techniques.
Insider trading is the practice of buying or selling shares using information that is not publicly available in order to profit.
Pump and dump is the term used to describe the manipulation of the stock market by driving up the price of a particular asset through the publication of opinion pieces or the dissemination of misleading information in order to induce investors to buy the security.
Market manipulation involves a variety of strategies to influence the value of securities, such as buying and selling a large quantity of securities at the same time.
When investors are sold shares without receiving the necessary information to make an informed investment decision, this is called improper sales tactics.
Investors should strive to make informed investment decisions and protect themselves from fraudsters because stock fraud is a serious crime. Investors should exercise due diligence and limit their investments to securities that they are convinced offer reputable investment opportunities.
Investors should endeavour to comply with the regulations in force in their respective countries. Investors should notify the relevant authorities as soon as they become aware of any suspicious behaviour or become victims of share fraud.
What is share fraud and how can it be recognised?
When a fraudster misleads an investor about a particular share or investment fund, it is called share fraud, a type of securities fraud.
This can happen by the fraudster promising profits that are unattainable or by trying to convince the investor to buy a share that is not valuable. An investor can spot share fraud by familiarising themselves with the financial market and understanding the dangers of investing.
Investors should always make an effort to research the company they are investing in before buying or selling shares and should speak to a licensed financial advisor who can assist them.
Scammers often try to mislead investors by giving them information about an inflated stock or mutual fund, so investors should exercise caution when receiving information about a particular stock or mutual fund.
What are some examples of this type of fraud?
Share fraud is a type of economic fraud or economic crime in which a person or group tries to make money by buying and selling shares. Share fraud comes in different forms, including:
- Insider trading: in this type of share fraud, a person or group exploits confidential information about a company to manipulate the share price.
- Pump-and-dump fraud: This type of stock fraud involves the dissemination of exaggerated or fraudulent information to artificially inflate the price of a particular stock.
- Market manipulation: This type of share fraud involves large-scale buying and selling to manipulate the market in order to drive the price of a share up or down.
- Price manipulation: In this type of share fraud, a person or organisation buys and sells a large number of shares in order to influence the price of a share.
- Publishing fake information: In this type of share fraud, a person or group publishes misleading information about a company in order to influence the share price.
- Market manipulation through short selling: In this type of share fraud, a person or group tries to depress the price of a share by selling shares short before buying them back.
Investors can reduce the risk of fraud by watching out for these causes of share fraud and carefully checking their investments.
How can you distinguish stock fraud from other types of securities fraud?
There are several differences between stock fraud and other types of securities fraud. The term “stock fraud” refers to a variety of unlawful acts designed to deceive or defraud investors by giving them false or misleading information about a company’s value or share price.
Insider trading, market manipulation, pump-and-dump fraud and misleading forecasts are some examples of stock fraud. Credit fraud and financial fraud are other forms of securities fraud.
In credit fraud, someone makes false statements about their financial situation or credit risk in order to obtain a loan for which they would not otherwise be eligible.
In financial fraud, someone makes misleading or false statements about their financial situation or assets in order to obtain money or other assets they would not otherwise be eligible for. Both forms of fraud are against the law and have harsh consequences for anyone who commits them.
How can investors protect themselves from the scam?
By doing thorough research and investing in companies with whose finances they are familiar, investors can protect themselves from fraud. Check a company’s registration with the US Securities and Exchange Commission (SEC) before investing in it.
Before making an investment, you should also carefully read any information you receive from a company. Find out about the company, the sector in which it operates and current developments in the financial markets.
You should also satisfy yourself that the investment documentation you receive is accurate and complete. Make sure you are aware of any risks associated with the investment by reading all documentation carefully.
Before making an investment, seek advice from an expert if you have any questions. In addition, investors should be cautious when asked about investment prospects. Such offers could be an indication of fraud.
Before investing, make sure the company is authentic by finding out who is behind the offer. It is important to track your investments regularly and keep track of your money.
If investors notice unexpected price changes, they should contact a specialist immediately.
What is the statute of limitations for share fraud?
The statute of limitations for share fraud is usually three years. This time frame starts when the affected shareholder or investor learns or should have learned about the conditions of the fraud.
It is important to remember that the limitation period may change in certain situations. Affected shareholders or investors should therefore seek expert assistance as soon as possible to review the relevant circumstances.
What legal provisions are there to prosecute offenders?
In Germany, there are numerous legal provisions designed to prosecute and prevent stock fraud. The Securities Trading Act (WpHG) serves as the most important legal basis. It contains a number of regulations that protect the securities market and promote ethical trading.
These include the laws on ad hoc reports, market manipulation and insider trading.
In addition, share fraud is specifically addressed in the legislation. Causing another to commit a pecuniary offence by fraud or omission is prohibited under certain circumstances under section 264 of the Criminal Code.
In addition, Section 266 StGB prohibits the publication of false or misleading information or the unauthorised use of insider information to induce someone to sell an asset.
According to 20 WpHG, it is against the law to make unauthorised use of insider knowledge or to disseminate false or misleading information in order to induce market participants to sell assets under certain circumstances.
If the dissemination of an untrue or misleading fact or the unauthorised exploitation of insider information results in shares being traded, this is prohibited under 21 WpHG.
In addition, the German Capital Investment Code (Kapitalanlagegesetzbuch, KAGB) requires investment firms to comply with the legal provisions to prevent insider trading and market manipulation.
The ultimate goal of all regulatory restrictions is to prevent stock market fraud and promote an environment of fairness and transparency.
What are the consequences of stock fraud?
For those affected, stock fraud can have serious consequences. In the worst cases, it can lead to criminal charges, lawsuits for civil or criminal culpability and/or significant financial losses.
Those who commit share fraud may also be subject to fines and/or imprisonment. In summary, share fraud is illegal in most countries and can have serious consequences for the individuals or companies responsible.
Therefore, it is crucial that executives, companies and investors know how to protect themselves from stock fraud by adhering to strict compliance rules.
How does a lawyer help victims?
Victims of share fraud can be helped by lawyers to defend their rights and pursue their claims. A lawyer can provide advice and assistance to a victim who wants to assert his or her rights. He can also ensure that a victim receives the information he needs to substantiate his claim.
In addition, a lawyer can help a victim of share fraud to make a claim for compensation and advise them on their obligations and rights in relation to share fraud. A lawyer can defend a victim in a court case and help them prepare documents.
Unfortunately, share fraud is a widespread problem that affects many investors. To avoid becoming a victim of fraud, it is important that investors educate themselves about the many types of fraud.
In addition, it is crucial that investors follow some basic rules, such as only funding reputable, long-established companies and staying informed about market trends. Investors can protect their assets and avoid scams by making prudent, informed investments.
Act quickly and learn about the legal options available to you. Contact the lawyers at Herfurtner Law Firm by clicking here and let them advise you.